Two nations, one need: stability

IF YOU think British politics are pretty poisonous, you should come to Washington. America is riven by the attempt to impeach Donald Trump in much the same way Britain is divided over Brexit.

But there is another parallel. Both economies are holding up remarkably well, given what is being thrown at them: the US trade war with China and uncertainty over Brexit. True, there are some cracks showing, including pressure on farmers in the US who have seen their exports to China plummet, and the damage the uncertainty has done to our motor manufacturers.

But a Reuters poll of US economists suggests that the chance of recession next year is now only 25 per cent. Last summer, it was reckoned to be 50 per cent. Share prices reflect this optimism, with the S&P 500 index reaching a new high last week.

Markets can be wrong but the odds are that Donald Trump (assuming impeachment fails) will go into the election next year with a growing economy. This summer the expansion had already become the longest period of uninterrupted US growth ever.

His pitch will be that he has delivered on growth, so don’t let the other side wreck it.

This matters directly to the UK. Solid growth in the US is helpful for us as it is our biggest single export market, equivalent to Germany and France put together, though the EU is bigger overall. But more than that, helpful to the world economy as a whole. If the world’s largest economy keeps growing, that pulls the rest along too.

Is this success thanks to Trump policies? No, not at all. It is thanks to the inherent resilience of US consumers. For, like Brits, if Americans have some cash at the end of the month, they will spend it. There are I think two lessons here for the UK. One is that you can throw quite a lot at an inherently sound economy before it starts to crack, and in both cases it is the consumers who give stability.

The other is that the UK, like the US, needs policy stability too. That is why they need clarity on the trade wars. There does not have to be a long-term settlement for competition for global leadership between the US and China that will run for a generation. A truce will do. And for us? We need a speedy settlement with Europe, which means we need a clear result from the Election.

And that is where the parallels between the US and UK diverge. The Donald hopes to get an economic bounce before the election next year. Boris hopes to get one after the Election next month – assuming he gets back in.

THERE is another common theme between the US and the UK: the attack on wealth from the political

Left. Americans have long tolerated wider income and wealth differentials than Britons, but whereas in the UK income differentials have decreased over the past decade, in the US they have gone on rising.

The result is a wave of support not only for higher income tax rates, but for something that the UK has not contemplated: a wealth tax. It is being promoted by two candidates for the Democratic presidential nomination, Senators Elizabeth Warren and Bernie Sanders. The Warren plan would start at fortunes of $50million upwards, which would affect more than 80,000 households. Unsurprisingly, the billionaires are less than delighted. Bill Gates, founder of Microsoft and the richest person in the world ahead of Jeff Bezos, founder of Amazon, half joked that he would have to start doing a little math to see what he would have left over.

Michael Bloomberg, owner of the financial information company Bloomberg LP, is so alarmed by this lurch to the Left of the Democrats that he has filed papers to join the race to the nomination. The media are full of stories of what happened in France when it brought in a wealth tax. Answer: overall tax revenues went down.

But there is a big difference between Europe and America. Rich Europeans can cut their tax bill by moving: the French go to Belgium, Britons to the Channel Islands. To stop paying US taxes, Americans have to give up their citizenship. So while the US probably won’t bring in a wealth tax, whoever wins the election, the American rich may well end up paying rather more tax.

If the world’s largest economy keeps growing, it pulls the rest along